In 1976, the plaintiff, a corporation engaged in the electronics business, purchased a facility in Dunmore, Pennsylvania. The plaintiff maintained an automotive battery plant at the Dunmore facility as part of its manufacturing operations in its automotive battery division.

When the plaintiff commenced operations at the Dunmore plant in 1976, the plant's on-site wastewater treatment facility was still under construction. Consequently, the plaintiff contracted with ABM Disposal Company ("ABM"), a waste hauling company, to dispose of the wastewater generated by the start-up operations at the Dunmore plant from July 30, 1976 to October 21, 1976.

Over this 83 day period, ABM removed eight loads of wastewater from the Dunmore plant. Each load of wastewater consisted of approximately 5,000 to 6,000 gallons. ABM deposited the waste into a well at 362-372 Henderson Road in King of Prussia, Pennsylvania ("Henderson Road site"). The removed waste contained such substances as copper, zinc, chromium, lead, oil and grease. All of these substances are considered hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9601(14).

The plaintiff now seeks indemnification from the defendant to the extent that the plaintiff has incurred costs in connection with both the defense and settlement of the proceedings arising from the EPA mandated remediation at the Henderson Road site. The defendant asserts that it has no obligation to the plaintiff since no such coverage existed.

CHOICE OF LAW

The court has jurisdiction over the present dispute pursuant to 28 U.S.C. § 1332 in that the amount in controversy exceeds $ 50,000 and the parties are citizens of different states. Since the court has jurisdiction based on diversity, the court must decide which state's substantive law to apply to the dispute.

The seminal choice of law case in Pennsylvania is Griffith v. United Airlines, Inc., 416 Pa. 1, 203 A.2d 796 (1964). In Griffith, the Pennsylvania Supreme Court abandoned the traditional lex loci delicti doctrine. That doctrine dictated that the law of the place of the injury be applied to tort cases. In its place, the Griffith court adopted a modified version of the flexible approach of the Restatement (Second) of Conflicts of Laws (1969). Under this flexible approach, a court must first determine whether a conflict actually exists between the jurisdictions which may have an interest in the dispute. Parker v. State Farm Ins. Co., 543 F. Supp. 806 (E.D.Pa. 1982). If the court finds a conflict exists, the court must perform a governmental interest analysis along with the significant relationships approach set forth in the Restatements (Second) of Conflicts of Laws. Myers v. Commercial Union Assur. Cos., 506 Pa. 492, 485 A.2d 1113 (1984); Parker, supra. Although the Griffith case involved a tort action, subsequent cases have extended the same rationale and approach to contract cases involving a choice of law question. See In re Complaint of Bankers Trust Co., 752 F.2d 874, 881-82 (3d Cir. 1984); Melville v. American Home Assur. Co., 584 F.2d 1306, 1312-13 (3d Cir. 1978) (construing In Re Hunter, 421 Pa. 287, 218 A.2d 764 (Pa. 1966).

On the issue in question here, what constitutes a "sudden and accidental" occurrence in the pollution exclusion language contained in the two policies, the court finds that Illinois law and Pennsylvania law do conflict. Under Pennsylvania law, "sudden and accidental" retriggers coverage under the pollution exclusion if the damages resulting from pollution discharges are both sudden, meaning abrupt and lasting only a short time, and accidental, meaning unexpected. See Lower Paxon Township v. United States Fidelity and Guaranty Company, 383 Pa. Super. 558, 557 A.2d 393, (1989); Techalloy Co. v. Reliance Ins. Co., 338 Pa. Super. 1, 487 A.2d 820, allocatur denied, 338 E.D.Allo.Dkt 1985 (Pa. Oct. 31, 1985); United States Fidelity & Guaranty Co. v. The Korman Corp., 693 F. Supp. 253 (E.D.Pa. 1988); American Mutual Liability Ins. v. Neville Chemical Co., 650 F. Supp. 929 (W.D.Pa. 1987). However, under Illinois law, "sudden and accidental" retriggers coverage under the pollution exclusion if the damages resulting from pollution discharges are unexpected or unintentional. See Outboard Marine Corporation v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 607 N.E.2d 1204, 180 Ill. Dec. 691 (1992). Since a conflict does exist between Illinois law and Pennsylvania law, the court must determine which state's law to apply.

In deciding which state's law to apply, the court will combine the most significant relationship approach set forth in the Restatement (Second) of Conflicts of Law with the governmental interest analysis. See Melville v. American Home Assurance Co., 584 F.2d 1306 (3d Cir. 1984). The Restatement recommends resolution of a choice of law question involving a contract dispute be based upon consideration of the following factors: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. Restatement (Second) of Conflict of Laws § 188 (1969). Section 193 of the Restatement deals specifically with fire, surety or casualty insurance contracts. Comment b to Section 193 states the principle that greater weight should be given to the state of the insured risk in making a choice of law determination. However, comment b states that this principle would be inapplicable to the facts of this case since the comprehensive general liability policy here was intended to insure the risks of business operations scattered throughout a number of states.

The requirements for summary judgment are provided in Rule 56(a) of the Federal Rules of Civil Procedure. Rule 56(a), in pertinent part, states:

[a] party seeking to recover upon a claim, counterclaim, crossclaim or to obtain a declaratory judgment may, at any time after the expiration of twenty days from the commencement of the action or after service of a motion for summary judgment by the adverse part, move with or without supporting affidavits for a summary judgment in the party's favor upon all or any part thereof.

Fed.R.Civ.P. 56(a).

Summary judgment is appropriate if there exists no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Small v. Seldows Stationery, 617 F.2d 992, 994 (3d Cir. 1980). The moving party need not produce evidence to disprove the opponent's claim but does carry the burden of demonstrating the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In turn, the non-moving party must offer specific facts contradicting the facts averred by the movant which indicate there is no genuine issue for trial. Lujan v. National Wildlife Federation, 497 U.S. 871, 110 S. Ct. 3177, 3186, 111 L. Ed. 2d 695 (1990). If there are no genuine issues as to material facts, the court must determine whether the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c).

The company [defendant] will pay on behalf of the insured [plaintiff] all sums which the insured shall become legally obligated to pay damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit it deems expedient . . .

Exhibit A to Plaintiff's Statement of Uncontested Facts at 15A.

The policy defines occurrence as meaning:

an accident, including continuous or related exposure to conditions, which results in bodily injury or property damage neither expected or intended from the standpoint of the insured;

Exhibit A to Plaintiff's Statement of Uncontested Facts at 7A.

Property damage, as defined in the policy means:

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time relating therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period;

Exhibit A to Plaintiff's Statement of Uncontested Facts at 7A.

Both policies, under which the plaintiff now seeks indemnification, contained in an exclusionary provision that reads as follows:

This insurance does not apply:

to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental;

In this instance, the plaintiff and the government have already entered into a consent decree to contribute to a trust fund to clean-up the Henderson Road site. Clearly, the plaintiff has incurred liability for ABM's illegal dumping. Thus, the question for the court is whether the costs incurred by the plaintiff in remediating and defending the Henderson Road clean-up fall within the coverage of the comprehensive general liability policy.

In order for the plaintiff to succeed on the summary judgment issue of coverage, the plaintiff must show: (1) that there was "property damage" during the policy period; (2) that the costs paid by the plaintiff were "damages"; (3) that there was an occurrence; and (4) that the release was sudden and accidental.

The parties do not dispute that ABM's illegal dumping caused property damage at the Henderson Road site. Thus, the court must examine if the costs the plaintiff paid were "damages", if the illegal dumping constituted an occurrence and if the release was sudden and accidental.

(A) "Damages"

Until its recent decision in Outboard Motor Corporation, the Supreme Court of Illinois never ruled on whether an insurer must provide coverage where the underlying action primarily seeks injunctive relief, a situation arising commonly in suits brought under CERCLA. The Outboard Motor Corporation court held that "damages" is unambiguous and that its ordinary plain meaning includes the costs of compliance with mandatory injunctions and/or response costs. Outboard Motor Corporation, 607 N.E.2d at 1215.

In this instance, the defendant supplied the plaintiff with a comprehensive general liability policy. This type of policy provides a type of coverage in which the insurer assumes a wide variety of risks. Id. The defendant failed to expressly define or limit the definition of "damages" in the comprehensive general liability policy. Without such a limiting definition of "damages," the court must apply the Outboard Motor Corporation definition. Consequently, the court concludes, as a matter of law, that the costs associated with the EPA mandated clean-up of the Henderson Road site for which the plaintiff seeks indemnification are damages it was legally liable to pay. Thus, the defendant may be obligated to indemnify the plaintiff for those costs.

(B) "Occurrences"

The coverage provision of the comprehensive general liability policy at issue in this case operates only if the property damage arises as a result of an occurrence, a term expressly defined in the policy. To qualify as an occurrence, the damage must result from an accident that the insured neither expected nor intended. In determining whether there has been an occurrence, "the relevant inquiry is not whether the insured intended or expected the event resulting in the damage but whether he intended or expected the damage resulting from the event." International Minerals & Chemical Corp. v. Liberty Mutual Ins. Co., 168 Ill. App. 3d 361, 522 N.E.2d 758, 765, 119 Ill. Dec. 96 (1988).

By contrast, the defendant alleges that the plaintiff expected the property damage that resulted from ABM's illegal dumpings. In order to support this claim, the defendant states that the plaintiff knew that the material could cause environmental damage. Hatterschide Dep. at 4-6, 18-19, 22, Defendant's Exhibit C; Werchowski Dep. at 14-16, 19, 26-27, Defendant's Exhibit E. The defendant alleges that the plaintiff's past dealings with ABM, coupled with the knowledge that the wastewater was potentially hazardous, shows that the plaintiff could have discovered that ABM engaged in environmentally unsafe practices and illegal dumpings. Thus, the defendant asserts that the illegal dumpings and the resulting property damage in this instance were expected events.

Specifically, the defendant cites to the following: (1) after allowing ABM to store liquid waste at the metals division of the plaintiff in Philadelphia in 1973, the plaintiff had to hire another contractor and expend its own money to remove hazardous residue from the tanks ABM used (Elmore Dep. at 43-45, Defendant's Exhibit B); (2) when ABM stored liquid waste in 1973, the plaintiff believed that ABM was doing so without an EPA permit (Exhibit 1 to Elmore Dep., Defendant's Exhibit B); (3) an ABM welder was involved in an explosion in 1973 at the plaintiff's Philadelphia facility while working on a tank truck; (4) the plaintiff made no effort to inquire into or check references about ABM's waste product disposal methods or locations (Werchowski Dep. at 42-43, Defendant's Exhibit E); and (5) the plaintiff had no reason to believe ABM would properly dispose of the waste.

The plaintiff counters the defendant's position with testimony that the battery division and the metals division operate independently and had no contact regarding either division's past dealings with ABM. Elmore Dep., Exhibit H to Plaintiff's Statement of Facts. The plaintiff also contends that even if someone in the battery division had knowledge of the prior dealings, these dealings are irrelevant since nothing would have put the plaintiff on notice that ABM would improperly dispose of the wastewater and cause the property damage.

The third circuit has stated that "issues of knowledge and intent are particularly inappropriate for resolution by summary judgment, since such issues must often be resolved on the basis of inferences drawn from the conduct of the parties." Riehl v. Travelers Insurance Co., 772 F.2d 19, 24 (3d Cir. 1985); Accord Ness v. Marshall, 660 F.2d 517, 519 (3d Cir. 1981). In the context of this case, the inference of the plaintiff's knowledge which the defendant seeks to establish by plaintiff's prior dealing with ABM is sufficient to raise an issue of material fact as to the plaintiff's expectations. Thus, the court cannot grant summary judgment.

The Supreme Court of Illinois recently ruled on what sudden and accidental means in the context of the pollution exclusion provision. In Outboard Motor Corporation v. Liberty Mutual Ins. Co., supra., the court found sudden, as used in pollution exclusion language similar to the case at hand, to be ambiguous. 607 N.E.2d at 1218. Since the ambiguity was contained in an exclusionary clause, the ambiguity was resolved against the insured. Id. The court determined that sudden had no temporal limitation. Instead, sudden was interpreted to mean unexpected or unintended. Id. Thus, the policy's coverage would protect the insured from unexpected or unintended releases, including those releases that may have been continuous. Id. at 1220. As a result of this ruling, the case was remanded to determine if the release was unexpected and unintended.

The Outboard Motor Corporation court recognized that unexpected or unintended was also an element of the policy's "occurrence" definition. Id. at 1220. The same is true for the policies currently being disputed. The Outboard Motor Corporation court distinguished the difference between the usage of unexpected or unintended in the occurrence definition as opposed to the pollution exclusion provision. In the occurrence provision, it is the property damage which must be unexpected or unintended. Id. In the pollution exclusion provision, it must be the toxic release which is unexpected or unintended. Id.

In this instance, the court must follow Illinois law. As such, the pollution exclusion exception will apply and retrigger coverage for the plaintiff if the toxic releases were unintended or unexpected.

Our website includes the main text of the court's opinion but does not include the
docket number, case citation or footnotes. Upon purchase, docket numbers and/or
citations allow you to research a case further or to use a case in a legal proceeding.
Footnotes (if any) include details of the court's decision.

Buy This Entire Record For
$7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.